National Association of Boards of Long Term Care Administrator (NAB) CORE Practice Exam

What depreciation method is indicated if a healthcare organization charges a depreciation expense of $3,000 per year for equipment with a total cost of $15,000 and a useful life of five years?

1. Sum of the years' digits depreciation

2. Declining balance depreciation

3. Straight-line depreciation

4. Accelerated depreciation

The correct answer is: Straight-line depreciation

The correct answer is straight-line depreciation because this method calculates depreciation by taking the total cost of the asset and dividing it evenly over its useful life. In this case, the healthcare organization has an equipment cost of $15,000 and a useful life of five years. To determine the annual depreciation expense using straight-line depreciation, you would subtract the salvage value (if any, which isn't specified here, so we assume it's zero) from the total cost and then divide by the useful life. Here, assuming no salvage value, the calculation would be: Annual Depreciation Expense = (Total Cost - Salvage Value) / Useful Life Annual Depreciation Expense = ($15,000 - $0) / 5 years = $3,000 per year. Since the organization charges a depreciation expense of $3,000 annually, it aligns with the straight-line method, as this results in a consistent and predictable expense each year over the asset's lifespan.